[MM_Member_Data name=’firstName’],
U.S. markets were mixed on Tuesday with the Dow closing lower for the fourth-straight session. The losses were limited as were the gains on the S&P 500 and the Nasdaq.
The Russell 2000, along with the mid-caps, showed continued strength after trading to a fresh all-time high north of 1,460. Technology and Consumer Staples were sector leaders while Materials paced the laggards.
Global Economy – European markets were mostly higher as the euro sank to a 10-week low against the pound. The Belgium20 and Germany’s DAX 30 added 0.1% while the Stoxx Europe 600 gained a tenth-point, or 0.03%. France’s CAC 40 climbed over a point, or 0.03%. The UK’s FTSE 100 declined 0.2%.
Asian markets were mixed following North Korea’s foreign minister claiming the U.S. has declared war on the country. South Korea’s Kospi and Japan’s Nikkei dropped 0.3%. Hong Kong’s Hang Seng Index and China’s Shanghai index advanced 0.1%. Australia’s S&P/ASX 200 was unchanged.
U.S. New Home Sales slumped 3.4% to a 560,000 unit rate in August, which was slightly below expectations.
The Case-Shiller 20-City home price index rose 0.73% month-over-month and 5.81% year-over-year to 201.99.
The Conference Board’s consumer confidence reading for September slipped to 119.8.
The Richmond Fed’s manufacturing index for September topped expectations after rising to 19.
Market Sentiment – Fed Chair Yellen said the Fed should be wary of moving too gradually but so far the gradual approach has been appropriate due to the subdued pace of inflation with low prices likely reflecting factors that should fade.
She added that it is imprudent to keep policy on hold until inflation hits the 2% target as there are risks of overheating without modest rate hikes over time. Yellen said persistent easy policy can hurt financial stability and noted that the Fed’s inflation goal is symmetric and that the 2% level is not a ceiling.
On the impact of the balance sheet unwind on rates, Yellen said the asset purchases lowered term premia by about 100 basis-points, but that doesn’t mean the unwind will boost rates by that amount, especially since the balance sheet will almost surely end up larger than where it was prior to the financial crisis.
She said the path of rate hikes may not be as predictable as the balance sheet unwind and emphasized the rate path is subject to a great deal of uncertainty and is not on a pre-set course.
Atlanta Reserve Bank President Raphael Bostic is pretty comfortable with a December rate hike, in comments to the press, and stated he’s mindful of the inflation undershoot.
He sees positive signs of rising price pressures, and looks for a pick up in growth. Mr. Bostic will become an FOMC voter next year.
Minneapolis Fed President Neel Kashkari commented that wage growth and inflation have been very limited, and the Fed’s not exactly sure why. He said his best assessment is that there’s more slack, which is telling him the Fed should be under no pressure to raise rates.
He added that they have time to let inflation climb back to target.
The iShares 20+ Year Treasury Bond ETF (TLT) traded down to $126.43 midday with rising support at $126.50-$126.25 holding. Resistance at $127.25-$127.50 held on the high of $126.89.
Despite today’s slight pullback, TLT has made higher lows over the past four trading sessions and represents a slightly bullish signal.
Market Analysis- The Spider S&P 500 ETF (SPY) has been trading in a tight range between $248-$250 for 11 sessions with the upper end representing fresh all-time highs from last week. Continued closes above resistance at $250-$250.25 would be a bullish signal for a possible run towards $252.50-$255, depending on momentum.
A close below $248-$247.75 could lead to a quick backtest to $247-$246 and the 50-day moving average. The latter represented prior resistance throughout July/ August and into early September. The gap higher above $246 will likely be filled if current support at $248 fails.
The Technology (XLK) is trying to build a fresh base of support at $58-$57.75 and the 50-day moving average following the recent pullback off the $59 level. Today’s low reached $57.86 with risk to $57-$56.50 on a close below $57.75.
Resistance is at $58.25-$58.50 with breakout potential to the low $60’s on another close above the latter. RSI is trying to rebound to reclaim the 50 level and an area that has basically been holding since early July.
All the best,
Roger Scott